After a summer bursting with expensive box office flops, a film made for a paltry $15,000 and starring an unknown cast is shaping up to become one of the year’s surprise successes.
Paranormal Activity, a horror film in the mould of the Blair Witch Project, has been selling out midnight screenings in a handful of US cities and looks set to become a bona fide hit when it is released across the US by Paramount this month.
The positive buzz surrounding the film is in sharp contrast to the negative reaction afforded several big budget releases this summer that flopped at the box office. As Hollywood studios tighten their belts, the lower budget film could be a sign of things to come.
The average cost of producing and marketing a studio movie has risen more than 6 per cent since 2007, according to The Motion Picture Association of America, while in the past 12 months profitable revenue streams, such as DVD sales, have sharply declined.
This has left the film industry facing some difficult choices. At Universal Pictures and Walt Disney, where several costly films have flopped recently, new strategies are being drawn up and senior executives have been replaced.
As chairman of Walt Disney Studios, Dick Cook oversaw some of the company’s highest grossing releases, such as the Pirates of the Caribbean films. But he left the studio last month after a year marred by misfires such as G-Force and Confessions of a Shopaholic.
He was swiftly followed out of Hollywood’s revolving door by Marc Shmuger and David Linde, the co-chairmen of Universal Pictures. In spite of leading the studio to its two most profitable years in 2007 and 2008, the pair were this week fired after a dire 2009.
Land of the Lost, a comedy starring Will Ferrell, was made for $100m yet garnered only $64m, as well as some of the worst reviews of the year.
Funny People, a Judd Apatow movie, was another box office turkey that the studio could not afford, given that the film cost an estimated $70m to produce – much more than previous films made by Mr Apatow.
Universal and Disney have both vowed to be more cost conscious. At Disney, Bob Iger, chief executive, has alluded several times this year to “sectoral changes” within the industry, notably, the collapse of the DVD market.
He has appointed Rich Ross, the president of Disney Channels Worldwide to replace Mr Cook. The studio will continue to distribute about 12 films a year but has scaled back production at its Miramax label, which released films including No Country for Old Men. Disney also struck a deal to distribute films financed and produced by Steven Spielberg’s DreamWorks.
This means Disney will be financing fewer movies, reducing its risk in the event that one of its films performs poorly.
At Universal, Ron Meyer, the chairman who decided to dismiss Mr Linde and Mr Shmuger, has vowed to make cost control a priority when commissioning films. “We have overspent and underperformed,” he says of the films released this year. “We have to change with the times and look at the economics of today’s movie business.”
In an industry rife with bloated salaries, talent pay is the most obvious area to cut. Some stars receive astronomical fees for their work and the “20 and 20” pay day – referring to a $20m upfront payment plus 20 per cent of the film’s gross before the studio earns a penny – is not uncommon.
Universal’s new management team refuses to be drawn on star salaries, with Donna Langley, the new co-chairman, insisting there are other areas to consider, such as the rising cost of energy and materials.
“Greenlighting any film is becoming more and more difficult [because] the cost of making movies has risen,” she says.
Top talent will continue to command a premium price, according to Barry Katz, president of New Wave Entertainment, which represents stars such as Dane Cook.
“I can guarantee you that the big stars aren’t going to take a pay cut,” he says. “Studios need them to bring in the audiences.”
